The objective of a trading account is to establish the ____
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Correct Answer: Option B
Explanation:
The trading account is prepared to determine the gross profit or gross loss of a business. It primarily focuses on the difference between sales and cost of goods sold (COGS), which includes the cost of producing or purchasing the goods that were sold during the period.
The structure is generally as follows:
- Sales are listed on the credit side.
- Cost of Goods Sold (COGS), which includes the opening stock, purchases, and direct costs related to the goods, are on the debit side.
The result is gross profit (or loss), which is calculated as:
\[
\text{Gross Profit} = \text{Sales} - \text{Cost of Goods Sold (COGS)}
\]
The trading account is prepared to determine the gross profit or gross loss of a business. It primarily focuses on the difference between sales and cost of goods sold (COGS), which includes the cost of producing or purchasing the goods that were sold during the period.
The structure is generally as follows:
- Sales are listed on the credit side.
- Cost of Goods Sold (COGS), which includes the opening stock, purchases, and direct costs related to the goods, are on the debit side.
The result is gross profit (or loss), which is calculated as:
\[
\text{Gross Profit} = \text{Sales} - \text{Cost of Goods Sold (COGS)}
\]